DomaCom (ASX:DCL) discusses its platform and property crowdfunding


by Jessica Amir

Jessica Amir: Hello. I’m Jessica Amir for the Finance News Network. Joining me from DomaCom Australia Limited (ASX:DCL) is CEO Arthur Naoumidis. Arthur, welcome back.

Arthur Naoumidis: Hi, Jessica. Good to be back.

Jessica Amir: For those that aren’t familiar, DomaCom facilitates fractional property ownership. So can you tell us what it is and how it works?

Arthur Naoumidis: It’s a platform that enables investors to pool together and acquire any property for sale in Australia for the purposes of a long-term real estate investment. So it’s very much like syndication except in a modern form, using the internet to enable people to pool together.

Jessica Amir: Now to some examples. Can you tell us what’s funded and what’s in the pipeline?

Arthur Naoumidis: So far we’ve transacted 43 times. Most of those properties are residential properties -- all around Australia. We own properties in every State -- New South Wales, Western Australia, South Australia, Queensland and Tasmania. And we also own a farm. Our first farm was bought out of Western District in Victoria and we’ve got a few more in the pipeline. We have a property in New South Wales which is undergoing subdivision. So we actually own a whole variety of properties. In terms of what’s coming, commercial properties, we’ve got more farms. We’ve got the first couple of what we call bioenergy plants and also affordable housing as well. So there’s a lot coming.

Jessica Amir: Sounds exciting. So how does one invest?

Arthur Naoumidis: People can invest generally through their financial planner or direct through DomaCom. So with their planner, it’s part of a normal asset location, and property should be a part of it, that’s our belief. But also some investors want to invest directly in specific property opportunities.

Jessica Amir: In terms of selling down their investment, how does one realise that?

Arthur Naoumidis: DomaCom comes with three built-in liquidity mechanisms. The general one is that most sub-funds, which is what we create to house a property, have a term of five years. And at the end of five years, everyone votes to renew or not and it must be 100%. So it’s an absolute liquidity guarantee, and that’s the first method. The second is, and that’s the unique feature of our Fund, is that we have market make-up permissions and we have a liquidity facility. It’s just like shares. So effectively people can buy their shares or their units in a sub-fund or sell them. So that’s the second liquidity mechanism. The third is investors can decide to wind up the sub-fund at any time they wish.

Jessica Amir: A more general question now about crowdfunding. How big is the market?

Arthur Naoumidis: It’s not that big in Australia, but globally it’s starting to really get scale. In terms of the statistics that we’ve been able to get, in the US property crowdfunding started in about 2012 with about $20 million of transactions, and the last statistics that we have is by about 2015 it was $2.5 billion. There are now about 300 property crowdfunding platforms in the US and several dozen in the UK and about a dozen in Australia. So this is a global phenomena and I’m pleased to say DomaCom is, I believe, the leader in Australia of what should be a very large market.

Jessica Amir: You’ve just launched two exciting crowdfunding campaigns. Can you tell us about these?

Arthur Naoumidis: Yes, I’m really excited to be part of two themes in Australia. One is affordable housing for retirees and the other is bioenergy for regional Australia. So the first is a project in Cobram, Australia, which is to raise $6.3 million to build 143 retirement villas for retirees, in what is an attractive area close to Melbourne. So from a thematic perspective, from a DomaCom perspective, it’s exciting because, as we all know, the population’s ageing, and the press every day is talking about affordable housing. And it’s good to be part of that. This is the first of what we expect to be several dozen of these around Australia.

The second is another exciting theme, which is to create a bioenergy plant in Casino, northern New South Wales, which enables that town to create some energy independence. So it enables investors to have a socially responsible investment and still make money, because both of these create a really attractive development return of 15%-20%per annum, which is exciting. But then ongoing, they deliver an income yield or gross rent of about 8%. So here investors can make money and address either their responsible investment for affordable housing or energy independence for regional Australia.

Jessica Amir: Turning the page now to financials, what are you targeting for FY18 and when does the business expect to be cash flow positive?

Arthur Naoumidis: Well, firstly, as a start-up it’s really hard to do forecasts, but I can tell you what our focus is very heavily on is growing our funds under management, and really part of that has been to address one of the key roadblocks that we’ve had, which is our inability to get debt within the sub-funds. We believe we have an answer to that and, all going well the next two months, we’ll be able to tell the market what the answer is. And we expect our funds under management then to grow rapidly after that.

So we’re focusing very heavily on funds under management, but at the same time we’ve got new products that are very close to delivery in terms of senior equity release. And then as well as that, we’ve got some other initiatives with regards to superannuation, which I’m going to talk about later.

Jessica Amir: Just before we wrap up, what does the next 12 months look like and longer term?

Arthur Naoumidis: Well, it’s a very exciting 12 months for DomaCom because the next 12 months is when we actually deliver on our funds under management, but also deliver on a couple of longstanding products. As I mentioned, the senior equity release product, which deals with another part of the market, which is the retirees who are running out of capital. So we believe it’s a very strong product and we expect that in the next 12 months.

And then as well, as the market knows, we’ve been trying to get a resolution from the Federal Court to confirm our belief that DomaCom is exempt of the related party in sole purpose test provisions of the Superannuation Act. If we receive this approval from the Federal Court, this will enable investors to use their superannuation to get on the property ladder, which is really topical in Australia.

So we’ve got a very exciting 12 months, both from a funds under management perspective, but also from a delivery of two key products. One is affordable housing for retirees and, using our superannuation ruling, enable the Gen X, Gen Ys to get on the property ladder by using their super. And all of this will relate to revenue for DomaCom, because we charge 0.8% of the underlying property. So as we grow our Fund, we’ll grow our revenue.

Jessica Amir: Well, it's all sounding incredibly exciting. Arthur Naoumidis, thank you so much for the update.

Arthur Naoumidis: Thank you, Jessica.